LANSING, MI – State Senators backed away from a plan to overhaul teacher retirement and healthcare plans, frustrating educators who say they'll now have to cut budgets and state House leaders who said they had agreed to a deal.

Senate Majority Leader Randy Richardville, R-Monroe, said members needed more time to study a bill that was supported earlier in the day in the state House, and could consider a vote when members come back on July 18.

But school leaders say they’re angry, because the reforms would have saved $300 million this year, and they must have a budget in place by July 1.

“It’s just irresponsible,” said Rockford Superintendent Michael Shibler, who is active in lobbying for schools. “We’re looking at $1.2 million in cuts if they don’t do this, and that’s going to be detrimental to kids. It’s unconscionable, and it didn’t have to happen.”

House leaders also were frustrated, because they believed they worked out a compromise after weeks of talks with the chamber on the other side of the Capitol.

“This is a vital reform, and we believed we had a deal in place,” said Ari Adler, spokesman for House Speaker Jase Bolger, R-Marshall. “I do think that this can still happen. This bill is not dead; it’s just not going to happen today.”

While the House approved the bill 57-47 around 11 a.m., Richardville said the Senate didn’t get it until around 4 p.m.

“When we got in and talked about the details, the caucus looked at it and just wanted a little more time,” he said.

“When you talk about something that people say we need a study group to look at for six more months, I think to say we need six more weeks to take a look at is isn’t unreasonable. My guys were ready if I really wanted them to, and to twist some arms to go for it. But I think in good conscience they wanted to make one more run at taking a look at what they did."

Republicans said the changes would be historic, tackling a system they said built up $45 billion in unfunded liabilities.

“We're not trying to attack teachers, we're trying to save the system,” said state Rep. Chuck Moss, R-Birmingham. “System is unsustainable. The system is about to crash. This is not the time to flinch from reality.”

The bill came after what the House believed was a late-Wednesday agreement where Senate Republicans have agreed to hold off on their plan to move newly hired school employees into a 401(k)-only retirement plan, keeping intact a hybrid pension/401(k) system that has been in place since mid-2010. Older workers will remain in a pension-only, or defined benefit, plan regardless.

The deal called for doubling health insurance premiums for school retirees; eliminating health coverage in retirement for new workers hired after July 1 and instead putting an extra 2 percent of their compensation into a 401(k) plan; and "prefunding" retiree health benefits.

The bill would have allowed districts to pay an amount equal to 24 percent of each employee's salary into the system and would have locked in that number as a cap.
Without the reforms, that percentage jumps up to 27 percent this year, and analysts project it could climb to nearly 35 percent in several years.

Robert LeFevre, director of education policy for the Macomb Intermediate School District, said districts hoping to call back laid-off staff members now are in limbo.

Teachers union leaders blasted the House vote, with Michigan Education Association President Steven Cook calling it the “single worst attack on school employee retirement security in history.”

“Since 40 percent of school retirees earn a pension of less than $12,000, it’s ridiculous to think they can somehow squeeze additional dollars out of their pension checks to pay more for health care, which this bill requires of thousands of school retirees under age 65.” Cook said in a release.

“Current school employees are struggling with wage cuts, increased out-of-pocket health insurance costs, and the 3 percent tax on their wages for retirement health care – they can’t afford these increased pension contributions.”

Several Democratic House members said the cuts broke promises made to retirees.
State Rep. Brandon Dillon, D-Grand Rapids, said the shortfall in the pension fund is partially caused by charter school employees not paying into the system. Many charter school employees technically work for management companies, and are not state employees. They don't receive state retirement benefits.

But Dan Quisenberry, president of the Michigan Association of Public School Academies, said contributions from the 5,000 charter school employees wouldn’t come close to filling the $45 billion unfunded liability.

Moss, the Appropriations Committee chairman, said he hopes a deal can still be reached with the Senate.

"This has been years in the making, and if it takes a couple more weeks, that's fine," he said. "I'm not ready to declare this dead yet."